CFTC Commissioners Wary Of Changing Regulatory Regime

By Jerry Hagstrom

Members of the Commodity Futures Trading Commission, including two Democratic commissioners who are former lobbyists for the National Farmers Union, expressed reluctance Tuesday to make changes in the CFTC’s regulation of agricultural futures markets.

The statements shocked NFU President Tom Buis and other agriculture leaders, who had gathered at a CFTC public forum to address widespread complaints that the futures markets can no longer perform the functions of price discovery and mitigation of risk. Institutional investors, hedge funds and index funds have become more active in the agricultural commodity markets, and some farmers and country elevator operators have suggested that the additional money pouring into markets has increased volatility and caused other problems.

Buis argued that CFTC alone cannot fix the problem, and said that Congress may have to step in. “When regulators say a problem doesn’t exist, despite the fact farmers cannot market their commodities, that sounds an alarm,” he said in a release. “Input costs have soared and without the marketing tools to protect against price volatility, farmers are more vulnerable than ever.”

But CFTC Commissioner Mike Dunn, who served in the Clinton administration, suggested in his opening remarks that market participants can “make the necessary changes to ensure these markets” function properly. Fellow commissioner Bart Chilton, told the Associated Press Tuesday that CFTC economists “have looked at all the data available ... and there doesn’t appear that any inordinate speculation has caused prices to move.”

Both used to work for the NFU, a Democratic-leaning group that has been skeptical about the workings of the futures markets. They were joined in their assessment by two other commissioners present.

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Predicting an agricultural “train wreck,” Buis noted that many farmers have not been able to forward-contract their grain because high prices have led country elevators to run up against their credit limits, and farmers continue to struggle with the rising costs of fuel and fertilizer. American Farm Bureau Federation President Bob Stallman told the commission that the tool of the futures market is “fundamentally no longer there for the average producer.”

Representatives of institutional investors defended their right to be in the commodities markets and said that their presence was so small that is had a far lesser impact than farmers think. John Kowalik, who represents the California Public Employees Retirement System pension fund, said that the move into commodities had allowed his massive fund to diversify its portfolio and be linked to inflation.

But the National Corn Growers Association, the American Bakers Association and the National Grain and Feed Association all called on the CFTC to make more distinctions among hedge funds and index funds in their analyses of the situation. Cotton growers and traders, meanwhile, said their futures market has completely broken down “We’ve never seen a market like this,” said Andy Weill of the American Cotton Shippers Association, calling on the CFTC to require reporting on commodities trading in over-the-counter markets and swaps.